Saturday, May 24, 2014

For
having uncovered the inherent contradictions in capitalism, French socialist
economist Thomas Piketty became a best-selling American author.

American liberals, progressives and leftists thrilled to the
notion that capitalism inevitably manufactures inequality. They drove his
rather academic book to the top of the Amazon best seller list.

As I have noted on the blog, Piketty’s policy proposals are more
interesting in America than they are in France. In his home country Piketty is
known as a close advisor for the French socialist party. The government of
Francois Hollande has adopted many of them, with some variations.

By now everyone in France knows that they have failed, so no
one takes Piketty very seriously.

In the meantime, Piketty’s reputation in the Anglosphere has
just suffered what appears to be a devastating hit. The highly reputable Financial Times has just published an
article claiming that Piketty fudged the numbers in his analysis. See also the
analysis on Quartz.

FT editor Chris Giles summarizes his article:

The
data underpinning Professor Piketty’s 577-page tome, which has dominated
best-seller lists in recent weeks, contain a series of errors that skew his
findings. The FT found mistakes and unexplained entries in his spreadsheets,
similar to those which last year undermined the work on public debt and growth
of Carmen Reinhart
and Kenneth Rogoff.

The
central theme of Prof Piketty’s work is that wealth
inequalities are heading back up to levels last seen before the first
world war. The investigation undercuts this claim, indicating there is little
evidence in Prof Piketty’s original sources to bear out the thesis that an
increasing share of total wealth is held by the richest few.

Prof
Piketty, 43, provides detailed sourcing for his estimates of wealth inequality
in Europe and the US over the past 200 years. In his spreadsheets, however,
there are transcription errors from the original sources and incorrect
formulas. It also appears that some of the data are cherry-picked or
constructed without an original source.

For
example, once the FT cleaned up and simplified the data, the European numbers
do not show any tendency towards rising wealth inequality after 1970. An
independent specialist in measuring inequality shared the FT’s concerns.

Business Insiderexplains that it's not just about making a mistake. Giles has accused Piketty of manipulating data to fit a pre-existing idea.

[Giles’s]
most damning claim: Piketty altered U.K. data to show that wealth distribution
there is worse off than it appears to be.

Piketty
says the share of income going to the top 10% never fell lower than 60%, and
since the end of the 1970s has returned to 70%, a level not seen in 70 years.

But the
data Piketty himself cites shows the top 10% share of wealth is no greater than
50%, and may be as low as 42%.

Giles
writes: "This appears to be the result of swapping between data sources,
not following the source notes, misinterpreting the more recent data and
exaggerating increases in wealth inequality."

I am not qualified to evaluate the evidence. I simply
point out that, in the world of economic ideas, and potentially economic
policy, this is a very big deal, indeed.

3 comments:

No one should be surprised by the fact that the numbers don't add up to the conclusions presented. Another take: http://pejmanyousefzadeh.net/2014/05/23/facts-are-stubborn-things-as-thomas-piketty-is-beginning-to-find-out/

This is not withstanding that we have neither free markets or capitalism. The closest we come is "crony capitalism," government interference which creates dysfunctional market outcomes, and a big dose of socialism. When the government is not allowing businesses to fail where they could take the proper steps to either fix it or go out of business which allows another competitor to provide a better product more efficiently, one does not allow the marketplace to function as it should.